MOSL: HCL TECHNOLOGIES (Neutral)-Organic growth remains the dampener
​HCL Technologies: Organic growth remains the dampener
(HCLT IN, Mkt Cap USD19.9b, CMP INR907, TP INR970, 7% Upside, Neutral)
- India drags organic growth: 2QFY18 CC revenue growth stood at 0.9% QoQ, which implies flat revenue on an organic basis, in our view. Growth was driven by Engineering Services (4.4% QoQ CC) - which should have some contribution from the IBM license arrangements. On a YoY basis, growth dropped from 12.2% CC in 1Q to 10.6%, and HCLT now expects growth at the lower end of the 10.5-12.5% band. India dragged 2Q performance (USD20m negative impact), excluding which growth in CC was 2% QoQ. HCLT's decision to get more selective here will weigh on FY18 growth.
- Watch out for impact of amortization on EBIT: EBIT margin was 19.7%, down 40bp QoQ, marginally ahead of our estimate of 19.4%. EBITDA margin beat was higher (90bp), offset by higher amortization during the quarter (USD25m). PAT at INR21.9b grew 0.8% QoQ, a shade below our estimate of INR22.1b on account of lower revenue growth. As per HCLT's amortization schedule, the impact on EBIT from amortization could be a slight headwind to margins to contend with.
- IMS underperformance remains a concern: YoY growth in IMS plummeted to 4.8%. However, even after adjusting for the USD20m impact from India SI, growth in IMS would have been <7%, materially below that being reported by peers such as INFO. IMS growth has come off significantly, since the tailwind of the Volvo deal has seized to exist.
HCL Technologies is a global IT services company working with clients in the areas that impact and redefine the core of their businesses. Co. focuses on 'transformational outsourcing', underlined by innovation and value creation, offering an integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and Business services. Co. leverages its extensive global offshore infrastructure and network of offices in 31 countries to provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare & Life sciences.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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